Download Unicorn Signals App

Powered By EquityPandit
 Signals, Powered By  EquityPandit

SEBI-Registered FPIs and Sovereign Wealth Funds Exempt from Angel Tax

Picture Source: Internet

Government and government-related investors such as central banks, sovereign wealth funds, international or multilateral organisations; entities registered with the Securities and Exchange Board of India (SEBI) and banks or entities involved in the insurance business: The Central Board of Direct Taxes (CBDT) said on Friday that these investments Those who belong to the category proposed to be exempted from the angel tax.

It also outlines five valuation methods for resident investors in addition to the discounted cash flow (DCF) and net asset value (NAV) methods.

The Finance Act, 2023 amends section 56(2)(viib) of the Income Tax Act. The provision, colloquially known as the “angel tax,” was first introduced in 2012 to discourage the generation and use of unrecorded funds by purchasing shares in closely related companies at a price higher than the fair market value of the company’s shares.

The provision stipulates that unlisted companies such as start-ups receive equity investment from residents and issue shares exceeding the par value of the shares, which will be included in the income of start-ups and pay income tax under the item “income from other sources” in the relevant fiscal year according to regulations. Under the latest amendments, the government proposes to include foreign investors, meaning that when a start-up raises funds from foreign investors, it will now also be considered income and taxable. Startups accredited by DPIIT are excluded.

Outlining the proposed changes to Rule 11UA, or valuation rules, the statement said that if a company receives any consideration for issuing shares from any non-resident entity notified by the central government, the price of equity shares corresponding to such consideration may be taken as the fair market value of the equity shares for resident and non-resident investors. Shares are conditionally valued if the consideration for such FMV does not exceed the total consideration received from the notifying entity and the company receives the consideration from the notifying entity within 90 days of the date of issue.

The Tax Department lists entities, governments and government-related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies, including government-controlled entities or 75% or more owned by the government, that are excluded from the angel tax Ownership entities; banks or regulated entities involved in the insurance business; entities registered with SEBI as Category 1 Foreign Portfolio Investors (FPIs), endowments and pension funds.

Broad pooled investment vehicles or funds with more than 50 investors and such funds are not hedge funds are exempt.

Sandeep Jhunjhunwala, M&A tax partner at Nangia Andersen LLP, said the proposal could free some startups from the angel tax sting.

Get Daily Prediction & Stocks Tips On Your Mobile